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You’ve heard about it in the news: Greece has been having a large financial crisis in the past three years. Greece has the 32nd largest economy in gross domestic product (GDP), and 29th in per capita. Greece is also the 31st most globalized country in the world. Though their economy is classified as “high-income,” their uncontrolled spending and lack of financial reform ultimately led to a shocking recession when the global economy took a turn for the worse. But the problem is not just contained within Greece, as it affects the rest of the Europe, and the value of the common euro.
Greece is making a serious effort to lower their current, rather worrisome deficit of over 12.7 percent. Their spending has been a major breach of the eurozone rules in deficit management. So what is Greece doing? Greece’s former Prime Minister, George Papandreou, administered harsh spending cuts before resigning in November 2011. Greece rose the retirement age up two years, spiked taxes on fuel, tobacco, and alcohol, and enforced and refined tax evasion laws. Most controversially, the Greek government has added a special real estate tax to go along with the electrical bill.
The twelve other countries in the eurozone can’t completely “bail out” their struggling neighbor, but they have made an agreement to loan Greece money. Europe relies on Greece in their stock markets. Greece has been relying on an aid package of €110 billion, or 152.6 billion lent out by its more wealthy neighbors, especially the large sum of money from Germany and France. The British are complaining that their taxes are being shipped directly to Greece.
Through large loans and the stock market, of which Greece was a large contributor, Greece seemed to have pulled the rest of the eurozone down with it. The “eurozone crisis” is starting to unravel as the rest of Europe falls more into an economic disaster. Italy is undergoing a 2.2% contraction, and Spain is expected to shrink about 1.7%. The euro in its current state is being called into question. The total eurozone GDP will fall by 0.5% this year. The International Monetary Fund predicts that the eurozone will shrink this year while simultaneously slowing the global economy. The only country where the IMF says the economy is going to grow is the United States.
Who’s to blame for the eurozone catastrophe? It’s easy to point fingers and say it was Greece’s fault for borrowing way more than what interest they could pay back. But Greece is not the only country that has done this. Portugal, Spain, Italy, and Ireland are guilty of the same crime; Greece is just the frequent scapegoat because they owe the most money. No one knows when or how the eurozone crisis will be resolved. Hopefully, each nation will resolve their financial woes, ending the European sovereign debt crisis, and stimulating the global economy. When this problem eventually gets solved, this widespread and unfortunate experience will hopefully never happen at this level again.